Thursday, October 30, 2014

Visa Inc. Q4 Earnings & Sell Thesis; Strong transaction growth and increased share buyback propel stock

Visa Inc. reported Fiscal Q4 EPS of $2.18, beating street consensus of $2.11 by 3.3%. This EPS figure is up 17% YoY, from $1.85 in Q4 fiscal 2013. This marks Visa’s fourth consecutive earnings beat. The stock is currently trading at $234.34, up ~9% from yesterday’s close- pushing to our price target.

Total net operating revenues for the quarter were $3.3BB compared to our estimates of $3.6BB, and an increase of 8.6% from the prior year’s quarter. Of this, Q4 service revenues came in at $1.5BB (up 8% YoY) and data processing revenues were $1.3BB (up 4% YoY). Total processed transactions for the quarter were $16.9BB, up 9% from the prior year, very much in line with the original investment thesis. Growth in emerging markets continue to drive top line growth.

The company continues to show effort in returning cash to shareholders. Visa authorized a new $5B share repurchase program, in addition to the previous 20% quarterly dividend increase.
After updating our model and checking our investment thesis, we believe the market has fully priced in future revenues that were being discounted originally, and the stock is now fully valued.


We are booking a capital gains return of 16%, excluding dividends, which would bring us closer to the 20% originally forecasted.  We are pleased with Visa being a strong part of our portfolio, and will continue to monitor the stock for another buying opportunity.

Ralph Lauren Q2 2015 Earnings



Ralph Lauren reported better than expected earning this morning for their second quarter 2015. They reported net income of $201 million, or $2.25 per diluted share compared to net income of $205 million, or $2.23 per diluted share year-over-year. Net revenues increased 4% to $2.0 billion led by retail segment expansion, including double-digit international growth. Retail sales grew 7% on double-digit international growth and global e-commerce. Consolidated same-store sales edged up 1%. Wholesale segment sales rose 2% to $943 million, and licensing revenue increased 2% on higher royalties.




Jacki Nemerov, President and COO, was very pleased with the results and stated, "Our better-than-expected second quarter results showcase the operational discipline of our organization. Despite the challenging global macroeconomic environment, we continue to experience strong momentum in key areas of strategic focus, including double-digit revenue growth internationally and for our e-commerce business. We’re also delivering improved profitability for underlying operations, which is helping to fund investments in our longer-term objectives. I am confident we are well-positioned for the upcoming Holiday season, supported by the distinctiveness of our luxury lifestyle positioning and the desirability of our products." 




For fiscal year 2015, RL adjusted its outlook due to foreign currency impacts. Ralph Lauren said it now expects a 5%-7% bump in fiscal 2015 consolidated net revenue, down from prior guidance for a 6%-8% rise. In the third quarter, the Company expects consolidated net revenues to increase by 3%-5%, including a 2% negative impact from foreign currency impacts. Operating margin for the third quarter is expected to be approximately 1-1.5% below y-o-y. The thesis for RL remains intact and I expect in the future they will continue to gain global market share. My yearly price target is adjusted to 194$ which represents a 21% upside from today’s closing price.




Wednesday, October 29, 2014

Solarwinds Inc. 3Q14 Earnings: Beat "Not Suprising", Up ~12%, Downgrade to HOLD


Yesterday 11/28/14 Solarwinds Inc. reported 3Q14 and held a corresponding conference call market close. Revenue and Non-GAAP EPS came in at $112.9MM vs our $109.MM estimate up 28% yoy and $0.50 vs. our $.43 estimate up 22% yoy respectively. Revenue highlights included strength in sales from the U.S Federal business, NA and LATM, license growth of 24% along with robust recurring revenue growth now 62% of total revenue. Bolstered by the top line and effective cost control by operational leaders the ever more scrutinized Non-GAAP operating margin was 45%. This was applauded by investors as the stock was up ~12% today. Pingdom performed well following the June acquisition and contributed slightly more revenue ahead of expectations adding “sizzle” to the beat. During the quarter 54,000 shares were repurchased under the current $2.1MM share repurchase program which began 3Q13 and expired on June 31st. In total $1.1MM shares were repurchased.
While Solarwinds has increased their investment incrementally and focused serving the on premise market, over the first 3 quarters of 2014 sequential growth rates of both Core Netman and Sysman product new license sales were up meaningfully. The company’s product pipeline has been funded by the investments made into the business which kicked off in late 2013, highlighted during their previous record quarter 2Q14. This investment has continued to pay dividends in top line growth despite short-term OM contraction, which to our expectations exceeded company guidance and street expectations by roughly 200 bps.  
The company issued updated Revenue and EPS guidance of $426.4MM-438.8MM and $1.77-1.79 for FY14 respectively up from $420.5MM-$426.5MM and $1.62-$1.72. More updates on 2015 outlook and growth initiates going forward will be provided on the company’s analyst day in NYC on November 12th
As a reminder after our double down in late June our average share price increased to $35.59. Currently we are up ~35% on the name. We continue to be encouraged by the results and operating leverage in Solarwinds business model. That being said we believe the near term positives are largely priced in at current levels. We are downgrading our rating to a HOLD and maintaining out PT of $52.00 which assumes a 27.1x multiple to our FY15 EPS of $1.95. Over the last 3 years the stock has sold for ~29x forward earnings. We believe the slight discount is attractive as the Pingdom acquisition, license growth acceleration and operating leverage of business will likely lead to higher profitability and further multiple expansion.

Tuesday, October 28, 2014

Regions Financial Corp Beats Earnings through Expense Reductions



Regions Financial Corporation reported Q3 EPS of $0.22, beating consensus estimates by $0.01. Total revenue increased by $20MM (2%) from the prior quarter to $1.3B, however revenue is down 1.5% YoY.
Total loan balances at quarter end were $77BB, representing an increase of $94 million from the previous quarter. The consumer-lending portfolio showed consistent growth, with auto lending & credit cards receiving the greatest gains. The indirect auto loan portfolio grew at 4% from the prior quarter and credit card balances increased by 2%. Unfortunately, these increases were partially offset by a $96MM decline in home equity balances.

Regions Financial Corporation’s net interest margin & net interest income were negatively affected by lower asset yields driven mainly by the low interest rate environment and competitive pricing pressures. Low interest rates caused by weakening global economic growth continue to hurt banks’ interest income, forcing them to turn to non-interest income from fee based services. Additionally, Regions continued to manage its expenses, which totaled $326MM for the quarter, while continuing to invest in talent and technology to spur future expansion.

Monday, October 27, 2014

PCP Sell Thesis

Precision Castparts Corporation reported earnings on October 24th, missing by $.08 and being in-line with revenue. Precision has not lived up to the valuation we have given it, and has fallen below our stop-loss. The vertical integration the PCP is putting into place, along with the acquisition of TIMET, failed to live up to expectations. While aerospace has been a great segment for growth and a main driver of PCP, our investment thesis is not being held true and is no longer applicable. Where Precision was once a leader in the industry, they are now a middling company in a market that is becoming saturated with Boeing 787s. Precision is no longer lucrative at its current price, and its recent earnings report supports that assumption.

Private Bancorp, Inc. Achieves 7th Consecutive Earnings Beat with Q3 2014 Results


The Private Bank recorded EPS of $0.51, beating estimates by $0.03­, with 21% in EPS YoY.  The stock reacted positively and increased by 3.94% on the day. Net revenue grew 10% YoY, mostly driven by sustained growth in earning assets and non-interest income but partially offset by increasing expenses. Operating profit for the quarter was $70.4 MM, up 11% YoY and up 4% from the prior quarter.  President and CEO, Larry D. Richman, announced the reason for Private Bancorp’s impressive net income of 40.5 million was due in part to “building quality client relationships”.

Net-interest income grew to 116.8MM (up 10% YoY), a result of higher average loan balances, especially in the commercial real estate area.  The amount of total loans increased to 11.5 billion, specifically from growth seen within the commercial real estate and industrial area of lending.  Private Bancorp’s net interest margin improved 5 bps to 3.23%.
Non-interest income for the quarter was 30.7MM, driven by growth in treasury management income, syndication fees, and deposit service charges. These increases were partially offset by growing employee salaries and compensation benefits, marketing, insurance, and loan and collection expenses. Total non-interest expenses for the quarter totaled $77.8MM.


Improving credit quality is positively reflected in the earnings report with net charge-offs decreasing to $88,000 for the quarter, down from $2.3MM in 2Q14. Non-performing assets decreased 39% YoY.  Overall, it was a strong quarter for Private Bancorp demonstrated through continued growth in their top line in addition to a strengthening balance sheet. However, concern over weak global economic growth and persistent low interest rates may continue to restrict the company’s future financial performance.

Friday, October 24, 2014

Union Pacific Q3'14 Earnings

            Union Pacific reported their Q3'14 earnings pre-market on October 23rd.  Their earnings per share was 1.53 representing a 23% increase year over year.  Their bottom line growth beat consensus estimates by 2 cents.  Top line freight growth increased 11% year over year to 5.9 billion, overall revenue came in at 6.2 billion.  The robust growth was driven by total volumes increasing 7% year over year including a 2.5 point improvement in operating ratio to a record 62.3%.  In addition core pricing which was a major driver in my investment thesis, improved revenue by carload by 3.5%. The stock price has increased about 5% since their earnings report due to investors appreciating an exceptional Q3'14.

            Agricultural revenue increased 19% year over year led by low commodity prices and high grain demand in China, Canada and Mexico.  Automotive revenue increased 3% year over year led by the North American Automotive production of 16.7 million vehicles (highest since 2006).  Chemical revenue increased 6% year over year driven by a increase in demand for liquid petroleum gas in Canada and Mexico.  Coal revenue increased 2% year over year driven by strong demand from lower inventories.  Industrial products increased 19% year over year led by double-digit growth in fracturing sand shipments and lumber shipments.  Lastly inter-modal revenue increased 15% led by domestic inter-modal revenue increasing interest for new premium services and highway conversions.  More over the personal injury rate was 4% lower than 2013 year to date to a staggering 1.09 ( new record).  Rail equipment incidents or derailment rate improved 7% to 3.04 which is a new record year to date.  Capital expenditure for 2014 is expected to be $4.1 billion for the year which includes an investment in 32 additional locomotives.

           Union Pacific returned 1.2 billion in dividend payments to shareholders and since the beginning of the year they have repurchased 24 million shares amounting to $2.3 billion worth.  All in all Union Pacific has returned $3.5 billion worth to shareholders over the first three quarters of 2014 representing a 47% increase over 2013.  Union Pacific's extraordinary investment in infrastructure continues to improve operating ratio's and safety and performance rates, representing their mission to continue to enhancing their overall value to their customers, workers and shareholders.  It was another record-breaking quarter for Union Pacific and I am expecting Union Pacific to continue to outperform and break new records in Q4'14.  After updating my model I have a price target of $126.